Economics of Exchange Rates (F)

Course content

This course focuses on issues in international money and finance using both a macroeconomic approach where exchange rates are explained by macroeconomic relationships and a microeconomic approach where exchange rates are determined by the interaction between market participants, for example dealers, corporations and central banks. Key topics include foreign exchange markets, how trades take place in the interbank and the retail segments of the market, exchange rate risk, carry trade, exchange rate determination, central bank interventions, order flows as a determinant of exchange rates, and the effects of a broad set of new economic information.


The main theme of this course is to combine theoretical models with empirical testing. Throughout the course, we first present a particular theoretical model and then we turn to the data and test whether the predictions (or assumptions underlying the theory) are consistent with actual behavior.


The course is divided into two modules. In the first module we apply a macroeconomic perspective on exchange rate determination focusing on flexible price and sticky price models as well as portfolio balance models. The empirical support for these models is discussed and we evaluate the models using their forecast performances. Central bank interventions are discussed from both theoretical and empirical perspectives.


The second module focuses on the microeconomic approach where we study the interaction of market participants and how the trading process determines the price of foreign exchange, the microstructure of the foreign exchange market. We will study how and why order flows determine exchange rates. The module also bridges the gap between microstructure and macroeconomic perspectives by analyzing the effects of releases of macroeconomic news on the exchange rate


MSc programme in Economics – elective course

The course is part of the Financial line at the MSc programme in Economics,   symbolized by ‘F’.


The course is open to:

  • Exchange and Guest students from abroad
  • Credit students from Danish Universities
  • Open University students
Learning outcome

After completing the course the student is expected to be able to:



  • Account for how the foreign exchange market is organized and refect on how trades take place in the market.
  • Describe the institutional features of the foreign exchange market products (spot and forward contracts) and be able to distinguish between speculation and arbitrage.
  • Reflect on the types of risks that foreign exchange traders face and explaine how these can be accounted for.
  • Describe and explain Covered Interest Rate Parity (CIP), Uncovered Interest Rate Parity (UIP), and Purchasing Power Parity (PPP) and be able to summarize the empirical evidence on international interest these parity conditions.
  • Describe the main models of exchange rate determination (the Mundell-Fleming mode, the Monetary approach to the exchange rate, Dornbusch overshooting model, the portfolio balance model and Lucas asset pricing model) and summarize the empirical evidence on these models.
  • Account for how macro data releases affect exchange rates and summarize the empirical evidence.
  • Identify and describe the channels by which central bank intervention can affect the exchange rate and summarize the empirical evidence on these channels.



  • Master and apply the main models of exchange rate determination to analyze the effects of monetary and fiscal policy on the exchange rate,
  • Master and apply microstructure based models to analyze price determination on the foreign exchange market.
  • Assess and apply investment strategies based on international parity conditions.



  • Plan and process relevant information for the analysis of the foreign exchange market.
  • Manage and carry out economic analysis related to exchange rate determination, forecasting and international financial management. in new unpredictable situations.



  • Miguel León-Ledesma and Alexander Mihailov (2021) Advanced International Macroeconomics and Finance, Oxford University Press, forthcoming.
  • Michael Bergman (2021) Lecture Notes on Central Bank Intervention, University of Copenhagen.
  • Journal Articles

Total number of pages: 450

The course requires a good grasp of both econometrics and mathematics.

It is recommended to have a background in finance and econometrics equivalent to the course "Corporate Finance and Incentives" or "Financial Decision Making" at the Study programme in Economics, University of Copenhagen.

2 hours lectures 1 to 2 times a week from week 6 to 20.

The overall schema for the Master can be seen at KUnet:
MSc in Economics => "courses and teaching" => "Planning and overview" => "Your timetable"
KA i Økonomi => "Kurser og undervisning" => "Planlægning og overblik" => "Dit skema"

Timetable and venue:
To see the time and location of lectures and please press the link under "Timetable"/​"Se skema" at the right side of this page (F means Spring)

You can find the similar information in English at
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-F25; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Forår/Spring”
Press: “ View Timetable”

Please be aware:
- The schedule of the lectures can change without the participants´ acceptance. If this occure, you can see the new schedule in your personal timetable at KUnet, in the app myUCPH and through the links in the right side of this course description and the link above.
- It is the students´s own responsibility continuously throughout the study to stay informed about their study, their teaching, their schedule, their exams etc. through the curriculum of the study programme, the study pages at KUnet, student messages, the course description, the Digital Exam portal, Absalon, the personal schema at KUnet and myUCPH app etc.



Feedback is obtained throughout the course in the following ways: (a) the lecturer answering questions in class or in direct connection to lectures; (b) written feedback to each student on submitted homework assignments; (c) individual meetings between lecturer and student during office hours (TBA).

7,5 ECTS
Type of assessment
On-site written exam, 3 hours under invigilation
Type of assessment details
ITX-exam in the exam venues of the university.
The exam assignment is given in English and must be answered in English.
Exam registration requirements

To qualify for the exam the student must no later than the given deadlines during the course:

  • Hand in and have approved 2 out of 2 mandatory assignments.
  • The assignments consist of either an empirical application related to the curriculum or a theoretical analysis of a model included in the curriculum.


Please be aware that:
• The assignments are prepared in groups of up to four students but must be handed in individually by each student. Students are responsible for their own solution.
• The plagiarism rules must be complied and please be aware of the rules for co-written assignments.


No aids allowed at the written ITX-exam.

Information about allowed aids for the re-examination, please go to the section "Re-exam".

Marking scale
7-point grading scale
Censorship form
No external censorship
at the written exam.
The written ITX-exam may be chosen for external assessment by random sample.
An oral re-examination may be with external assessment.
Exam period

Exam information:

The exact time and place will be available in Digital Exam from the middle of the semester. 

More information about examination, rules, aids etc. at Master(UK) and Master(DK).


The reexam is a 30 min. oral exam without preparation time. 

No aids allowed during the examination.

You must still hand in and have approved 2 out of 2 mandatory assignments.


Reexam information:

More information in Digital Exam in August.

More info: Master(UK) and Master(DK)

Criteria for exam assessment

Students are assessed on the extent to which they master the learning outcome for the course.


In order to obtain the top grade “12”, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.

In this course the student should also be able to independently analyze movements in actual exchange rates using economic theories discussed during the course. This includes the analysis of extended theoretical models covered in the course.


In order to obtain the passing grade “02”, the student must in a satisfactory way be able to demonstrate a minimal acceptable level of  the knowledge, skills and competencies listed in the learning outcomes.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 161
  • Exam
  • 3
  • English
  • 206


Course number
7,5 ECTS
Programme level
Full Degree Master

1 semester

- Go to 'Signup' for information about registration and enrollment.

Information about admission and tuition fee:  Master and Exchange Programme, credit students and guest students (Open University)

and venue:
- For teaching: Go to 'Remarks'.
- For exam and re-sits: Go to 'Exam'.
Department of Economics, Study Council
Contracting department
  • Department of Economics
Contracting faculty
  • Faculty of Social Sciences
Course Coordinator
  • Michael Bergman   (15-4f6b656a63676e30446774696f63704267657170306d7730666d)

See ‘Course Coordinators’

Please read "Remarks" regarding the schedule of the teaching.

Saved on the 17-05-2024

Are you BA- or KA-student?

Are you bachelor- or kandidat-student, then find the course in the course catalog for students:

Courseinformation of students